ESTRA ENTERPRISES PVT. LTD. ((NOW SUCCESSOR OF M/S. ROVERCO APPAREL COMPANY PVT LTD.) ,CHENNAI vs. DCIT NON CORPORATE CIRCLE 5(1) , CHENNAI

आदेश /O R D E R

PER M. BALAGANESH, ACCOUNTANT MEMBER:

The appeal in ITA No.2652/Mds./2017 is directed against the

order passed by the Ld.CIT(A) -3, Chennai in ITA No.229/16-17/A-3

dated 30.08.2017 against the order passed by the ld. Assessing Officer

u/s.143(3) r.w.s.254 of the Act dt.07.12.2016. The appeal in ITA

No.2034/Mds./2017 is directed against the order passed by the Ld.CIT(A)

-3, Chennai in ITA No.253/16-17/A-3 dated 30.06.2017 against the order

ITA Nos.2652 & 2037/Mds./2017 :- 2 -:

passed by the ld. Assessing Officer u/s.154 of the Act dated 28.02.2017.

These appeals are taken up together for the sake of convenience and

disposed off by this common order.

First we take up ITA No.2652/Mds./2017

Ld.CIT(A) was justified in confirming the disallowance made u/s.40(a)(ia)

of the Act in the sum of `70,32,891/- and `81,46,798/- in the facts and

circumstances of the case.

engaged in the business of manufacturing and exporting of readymade

garments and had filed its return of income for assessment year 2010-11

admitting total income of `127,06,914/- after setting off carry forward

business loss of 14,45,378/- pertaining to assessment year 2009-10. The

assessment was completed u/s.143(3) of the Act on 28.03.2013

determining the total income at `868,02,598/-. The assessee got partial

relief before the Ld.CIT(A) against the additions made in this assessment

Later both the Revenue as well as the assessee preferred an appeal

before this Tribunal. This Tribunal in ITA No.2050/Mds./2015 & ITA

No.2212/Mds./2015 vide order dated 28.06.2016 set aside the orders of

the lower authorities and remitted back to the file of AO with regard to

the issues contested before it. Accordingly, a show-cause notice was

issued by the ld. Assessing Officer on 27.09.2016 calling for the details of

labour, processing fee, testing fee, audit fee etc., of `70,32,891/- and

ITA Nos.2652 & 2037/Mds./2017 :- 3 -:

expenditure of 3,65,01,708/-. In response to the showcause notice, the

assessee filed various details vide letters dated 09.11.2016, 23.11.2016,

25.11.2016 and 02.12.2016. The assessee also submitted a copy of bills

and vouchers, TDS remittance challans, party-wise payment details etc.

The assessee was asked to produce all the original bills and vouchers,

ledger details and TDS remittance details along with challans break up for

verification. All these details were duly furnished by the assessee before

the ld. Assessing Officer. On verification of various details filed by the

assessee, the ld. Assessing Officer proceeded to complete the assessment

u/s.143(3) r.w.s.254 of the Act by making the following disallowances:-

(i) Disallowance u/s.40(a)(ia) of the Act : `70,32,891/- (labour, processing fee, testing fee, audit fee etc.,)

The ld. Assessing Officer disallowed a sum of `70,32,891/-

representing expenditure towards labour, processing fee, testing fee,

audit fee etc., u/s.40(a)(ia) of the Act on the ground that the tax was not

deducted by the assessee in respect of the said expenditure and also on

the ground that these expenditures remained outstanding at the end of

the previous year. The ld. Assessing Officer also observed that the TDS

details furnished by the assessee were not matched along with the TDS

challans and bill wise payments. Accordingly, he observed that the

assessee was not able to prove all the amount of payments were

remaining outstanding as on the balance sheet date with regard to the

ITA Nos.2652 & 2037/Mds./2017 :- 4 -:

above mentioned expenditure. Based on this observation, he disallowed

the entire sum of `70,32,891/- u/s.40(a)(ia) of the Act in the assessment.

(ii) Disallowance u/s.40(a)(ia) of the Act : `81,46,798/-

The assessee claimed a sum of `365,01,708/- towards business

expenditure. The ld. Assessing Officer observed that these expenditures

were pertaining to financial year 2008-09 relevant to assessment year

2009-10 and accordingly not allowable for the year under appeal. He

further observed that in view of the proviso to Sec.40(a)(ia) of the Act,

the expenditure which is subjected to TDS in any assessment year should

be allowed on the basis of deduction of TDS on payment basis by placing

reliance on the decision of this Tribunal in the case of ACIT Vs. Ennore

Coke Ltd., in ITA No.1921/Mds./2015 dated 22.01.2016. The ld.

Assessing Officer observed that in this regard the assessee submitted the

original bills and vouchers together with the TDS remittance challans in

support of its claim. On verification of the same, the ld. Assessing Officer

noticed that out of assessee’s claim of expenditure of `365,01,708/-, an

amount of `283,54,910/- was found to be correct and accordingly

allowed the same and the difference of `81,46,798/- was disallowed

u/s.40(a)(ia) of the Act by the ld. Assessing Officer.

the Act in sum of `70,32,891/- towards labour, processing fee, testing

ITA Nos.2652 & 2037/Mds./2017 :- 5 -:

fee, audit fee etc., the assessee submitted the TDS reconcilation is as

under:-

Particulars Amount in Rs. (`) Amount on which TDS was deducted 17,98,039/- Amount on which TDS is not applicable 14,19,293/- TDS not deducted 38,15,560/- Total 70,32,892/-

Based on the above mentioned chart, the assessee pleaded that the

disallowance be restricted to the sum of `38,15,560/-, being the amount

on which the tax was not deducted. The Ld.CIT(A) however, did not heed

to the contentions raised before him by the assessee and accordingly

upheld the action of the ld. Assessing Officer by sustaining the

disallowances.

4.1 With regard to the disallowance of `81,46,798/- u/s.40(a)(ia) of

the Act, the assessee produced the list of expenditure for `81,46,798/-

stating that certain expenditure does not come under the ambit of

deduction of tax at source and certain expenditure were incurred below

the threshhold limit of applicability of TDS provisions. The details of the

same are as under:-

Particulars Amount in Rs. Testing expenses 169924 Consumables 346242 Purchase Fabrics 113711 Repairs & Maint 114522 Engg & Fuel 235072 Car-petrol/diesel 151859 Repairs & Maint(P&MP 171213 Labour charges 175148 Water xps 251928

ITA Nos.2652 & 2037/Mds./2017 :- 6 -:

Electricity office 340050 Repairs & Maint(Others) 382033 Designs & Development 415611 Purchase of furniture 442805 Purchase of electronics 700000 Machinery spares 1146359 Acid chemicals 1250177 Export-Air freight 1684471 Others 55673 Total 8146799

The Ld.CIT(A) however, did not heed to the contention of the assessee

and upheld the action of the ld. Assessing Officer. Aggrieved, the

assessee is in appeal before us on the following grounds:-

“1. For that the order of the Learned Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case. 2. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.70,32,891/-uls 40(a)(ia) of the Act. 3. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 81,46,798/- u/s. 40(a)(ia) of the Act. 4. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the levy of interest u/s. 234A of the Act in consequence to the above disallowances. 5. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the levy of interest u/s. 234B of the Act in consequence to the above disallowances. 6. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the levy of interest u/s. 234C of the Act in consequence to the above disallowances.”

available on record. From the facts narrated above, we are of the

considered opinion that the lower authorities had not looked into the

entire issue in the proper perspective vis-à-vis the various details and

evidences submitted by the assessee before the ld. Assessing Officer as

well as Ld.CIT(A). Hence, we deem it fit and appropriate to remit this

ITA Nos.2652 & 2037/Mds./2017 :- 7 -:

issue in respect of two disallowances made u/s.40(a)(ia) of the Act as

above, to the file of ld. Assessing Officer in the interest of justice and fair

play and decide the same in the light of evidences submitted by the

assessee. The assessee is also at liberty to furnish evidences in support of

its claim before the ld. Assessing Officer. Accordingly, the grounds raised

by the assessee in this appeal are allowed for statistical purposes.

Next we take up ITA No.2034/Mds./2017

Ld.CIT(A) was justified in upholding the disallowance of depreciation of

`2,30,78,160/- ignoring the provisions of Explanation-5 to Sec.32(1) of

the Act in the facts and circumstances of the case.

u/s.143(3) of the Act declaring total income at `8,68,02,598/-. Later, the

assessee preferred a rectification petition u/s.154 of the Act on

26.12.2016 wherein a claim for depreciation in the sum of `2,30,78,160/-

was made by the assessee before the ld. Assessing Officer on the assets

put to use by it for the purpose of business. The ld. Assessing Officer

passed an order u/s.154 of the Act dated 28.02.2017 by observing as

under:-

“This office was in receipt of your rectification petition u/s.154 dated 26.12.2016 for A.Y 2010-11 requesting for allowing depreciation of `2,30,78,160/-. On verification of Income Tax Return filed by you for A.Y 2010-11, it was found that you have claimed depreciation for `2,30,78,160/- in column 12(i) of schedule BP however in column-6 of Schedule-DEP, it has been left blank. As such your request for rectification u/s.154 cannot be processed.”

ITA Nos.2652 & 2037/Mds./2017 :- 8 -:

The ld. Assessing Officer dismissed the claim of depreciation of the

assessee as stated above. The assessee pleaded before the Ld.CIT(A) by

placing reliance on the provisions of explanation-5 to Sec.32(1) of the

Act, which states that the depreciation should be allowed to the assessee

irrespective of the fact whether or not, the same was claimed in the

return of income by the assessee. However, the Ld.CIT(A) did not accept

this argument of assessee and rejected the plea of assessee. Aggrieved,

the assessee is in appeal before us on the following grounds:-

“1. For that the order of the Learned Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case.

available on record. We find the the provisions of the Act contained in

Explanation-5to Sec.32(1) is very clear, which is reproduced herein under

for sake of convenience:-

“Section 32 DEPRECIATION

……… ………….. Explanation 5— For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has

ITA Nos.2652 & 2037/Mds./2017 :- 9 -:

claimed the deduction in respect of depreciation in computing his total income ;”

In view of the aforesaid specific provisions contained in Explanation-5 to

Section 32(1) of the Act, we are inclined to accept the claim of

depreciation in a sum of `2,30,78,160/- made by the assessee.

Accordingly, ld. Assessing Officer is hereby directed to grant allowance for

the same. Hence, the grounds raised by the assessee in this appeal are

allowed.

9 In the result, the appeals of the assessee in ITA

No.2652/Mds./2017 is allowed for statistical purposes and in ITA

No.2034/Mds./2017 is allowed. Order pronounced on 08th February, 2018 at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) (एम बाला गणेश) (N.R.S. GANESAN) (M. BALAGANESH) �या�यक सद�य/Judicial Member लेखा सद�य /ACCOUNTANT MEMBER

चे�नई/Chennai, �दनांक/Dated: 08th February, 2018 K S Sundaram आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ� Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त(अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF